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Time to leave PG&E? Some Sacramento-area cities and counties explore ‘public power’

After days of darkness ordered by a wounded corporate giant based in San Francisco, and with more blackouts on the horizon, officials across the Sacramento region have begun to wonder whether it’s time to find another way to keep the lights on.

Buoyed by a call from Gov. Gavin Newsom for local jurisdictions to make bids for existing Pacific Gas and Electric infrastructure as the company goes through bankruptcy, some officials and experts are exploring ways to control power delivery to their homes, government buildings, hospitals and businesses.

The mayor of Rocklin has called for a study into whether the foothill suburb could gain control of PG&E’s infrastructure. The city of Lincoln is looking into the possibility of tapping into either Roseville Electric Utility or SMUD in Sacramento, both of which are locally controlled.

And on Friday, Yolo County’s Valley Clean Energy made a $300 million bid to buy the PG&E poles and lines that transmit power to local customers. Several other Northern California groups, including the city of San Francisco, have made similar offers.

While the idea of “public power” is not new or unusual, the historic PG&E shutoffs this month cutting power to hundreds of thousands of customers have created a greater sense of urgency. The utility has defended its use of the so-called public safety power shutoffs as a way to avoid catastrophic wildfires amid high winds.

“These power shutoffs have brought a whole different dynamic to the conversation,” said Rocklin Mayor Joe Patterson. “I just think that we cannot accept this as the normal circumstance.”

Newsom told reporters on Oct. 18 that he was focused on what the California Public Utilities Commission could do to crack down on PG&E. Officials with the utility told the commission the same day that while it would work to narrow the scope of future blackouts, it could shut down the entire grid if weather conditions call for it.

“The size and scope of this utility leads to the obvious question: Is it too big and can it be broken up and managed in a different way?” Newsom said.

Around the Sacramento region, public officials are already trying to answer that question. An exodus away from PG&E, a publicly-traded company that is currently under a hostile takeover threat from a group of hedge funds, would represent a significant shift in how the region manages its power.

The sale of PG&E infrastructure to a municipal utility would be subject to scrutiny by the PUC and the bankruptcy judge overseeing the company, and likely face significant push-back from PG&E’s labor unions as well as stockholders.

Nevertheless, the widespread outages have some smaller communities in the region looking to follow the path of municipal utilities free from PG&E’s near-monopoly in Northern California, where it has 16 million customers.

“I think the tide is very much shifting,” said Todd White of Roseville Electric Utility, which has run the city’s power for more than a hundred years and was unaffected by PG&E’s power shutoffs. “It’s hard to anticipate how it’ll play out, but a lot of municipalities will be asking these questions.”

CA governments bid

On Friday, Valley Clean Energy submitted a non-binding $300 million offer to buy PG&E lines, poles and other distribution assets within Yolo County to create a new locally owned and operated public utility. The joint powers authority serves electricity to Woodland, Davis and unincorporated parts of the county using PG&E transmission lines.

With PG&E in bankruptcy court, and favorable sentiment from the governor, Valley Clean Energy “just felt the timing was right” to pursue an offer, said customer care and marketing director Jim Parks. Valley Clean Energy officials say the purchase would help PG&E stabilize its finances, and provide locals a more efficient and safe power system.

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“Bottom line, our offer makes financial and environmental sense,” Valley Clean Energy Vice Chair and Yolo County Supervisor Gary Sandy said in a statement.

Several other municipalities have made similar bids to PG&E, arguing that their multi-million dollar offers would help the utility, saddled with billions of dollars in wildfire-related liabilities, exit out of bankruptcy.

The city of San Francisco offered to buy the company’s electrical operations for $2.5 billion in September. The company quickly rejected the offer, saying it significantly undervalued PG&E’s assets in the city.

The South San Joaquin Irrigation District submitted last month a $116 million offer to the utility for PG&E’s infrastructure in its service area, re-upping previous offers the water agency has made for the electrical system in 2006 and 2016, which were rejected by PG&E.

“We look forward to the opportunity to negotiate in good faith with PG&E, and work with other claimants involved in the bankruptcy case,” the agency’s general manager, Peter Rietkerk, told the Manteca Bulletin. The south San Joaquin agency has yet to hear back from PG&E, assistant general manager Bere Lindley said Monday.

But they are likely to receive the same response as others.

PG&E is “aware of an interest expressed by a few entities to explore purchasing PG&E assets,” said spokeswoman Jennifer Robison.

“However, our facilities are not for sale,” she said in a statement, “and selling them would not be consistent with our charter to operate or our mission to serve Northern and Central California communities.”

‘Early high-level exploration’

Despite PG&E’s rejection of San Francisco’s offer, at least two cities in the Sacramento region have started preliminary inquiries into whether they can buy existing PG&E infrastructure, build new infrastructure, or be annexed by neighboring local utilities.

“The truth is, I don’t know if we should be going elsewhere. We don’t know if there’s going to be a return on investment or a lot of unanswered questions,” Rocklin Mayor Patterson said. “My goal at the end of the day is to move the city forward to investigate those options.”

The city of Rocklin had already been in talks with the Roseville Electric Utility prior to the recent blackouts, as Rocklin residents have long expressed displeasure over how high their energy bills are compared to the neighboring city. In a memo last month, city staff reported that the local agency seemed willing to discuss the possibility of annexation should Rocklin acquire PG&E’s poles and wires.

“I really want Rocklin to move forward exploring alternatives. That could mean purchasing PG&E infrastructure or being a part of a bigger solution by the legislature. We’re definitely looking into being annexed by Roseville (Electric Utility),” Patterson said.

In Lincoln, discussions about a possible annexation for the city started over dinner during an event in Washington D.C. earlier this year, said Mayor Paul Joiner. A SMUD representative suggested to Placer County officials that they “might want to consider being annexed,” Joiner said.

SMUD ratepayers, like in Roseville, were unaffected by PG&E’s power shutoffs because the locally controlled utility owns and operates its energy generation and delivery system. Now, the city of Lincoln is in the midst of “early high-level exploration into the feasibility of an alternative power transmission system,” Joiner said.

“I don’t want to taint anything,” he said, “but if with the next steps it seems logical to explore the path further, we will take that.”

Joiner said he expects city staff will return with their feasibility study to the City Council by early next year. “I don’t want to get people too excited,” he said. “It’s certainly not a done deal.”

As for SMUD expanding its service areas, spokesman Chris Capra said, “We can only educate, but we can’t advocate for annexation.”

“We can’t go to someone and say, ‘Do you want to be served by us?’ ” he said. There would be “considerable costs involved” for a feasibility study into whether power from transmission lines just north of Placerville, for example, could be siphoned off for the foothill city, he said.

Todd White, an assistant electric utility director with the Roseville energy supplier, said annexation is “a decision that is Rocklin’s to make.” Roseville has never annexed or considered annexing another municipality into its service area, he said.

“We’re certainly willing to engage in discussion,” he said. “There’s a lot of different ways (that this) could play out.”

Past SMUD annexations

The annexation of PG&E territory into locally controlled electric utilities is not unprecedented in the Sacramento region, but has historically been a long, expensive and politically fraught process. The last time SMUD successfully annexed a portion of PG&E’s service area was in 1989, when it purchased the company’s infrastructure on behalf of the city of Folsom, Capra said.

In regulatory filings, PG&E estimated the value of its infrastructure in Folsom at about $26 million, Capra said. PG&E ultimately sold the poles and wires to SMUD for about $13 million, Capra said, and Folsom residents paid a surcharge on their SMUD bills to repay the cost of purchase.

In the first 15 years SMUD serviced Folsom, the utility estimates city residents collectively saved $238 million compared to their previous rates with PG&E, Capra said.

Not all annexation attempts have been successful, however. In 2006, a measure to expand SMUD’s service area into Yolo County failed to win over enough votes among SMUD ratepayers in Sacramento and Placer counties.

The Sacramento utility had estimated the infrastructure in Yolo County to cost between $86 million and $133 million, according to reporting from The Sacramento Bee at the time. PG&E valued its equipment at $520 million.

SMUD director Bill Slaton told The Bee in November 2006 that while he would respect the vote, there may have come a time when an opportunity to expand might make sense, saying, “You never say never.”

El Dorado Hills locals have also floated the idea of annexing into SMUD since the utility was just across county lines, “but I told them — at that point the Yolo experience was fresh — and I told them you’d need to raise a lot of money to offset any concerted PG&E effort to sink it,” said Jose Henriquez, executive officer at El Dorado’s Local Agency Formation Commission.

“PG&E went to the mat and beyond to prevent the annexation of Yolo into SMUD,” he said. PG&E spent $11.1 million in its fight against SMUD’s bid to expand. Annexation supporters raised a little over $1 million on the political campaign.

Complex endeavor

Not all local officials are convinced their communities, particularly in Northern California’s more rural areas, are in a position to take over PG&E’s power and distribution responsibilities. Though Rocklin’s mayor has called for a feasibility study, a majority of the council is against the idea, at least in the short-term.

“I’m not seeing the value of spending taxpayer money for a study to essentially tell me what I already know,” said Rocklin Councilman Ken Broadway. “Spending $100,000 on this kind of research is not feasible.”

Councilwoman Jill Gayaldo agreed.

“Let’s be honest, if San Francisco didn’t scare them off, I’m not so certain Rocklin has got them on the ropes,” she said.

In El Dorado County, which is heavily forested and includes many mountains and valleys, the creation of a new local utility would be a more complex endeavor, said Henriquez, executive officer at the county’s LAFCO.

“I just don’t see how getting in the business of installing and maintaining lines in a rural county is going to make sense for us,” Placer County Supervisor Uhler said.

Windeshausen said that while it might seem like “you just make a bid,” some municipalities have been working for decades to review and analyze a possible purchase of PG&E infrastructure.

“I just think communities need to be realistic about the challenges,” she said. “Rural areas can’t support taking over (transmission lines). … There are not enough customers to account for the assets that need to be purchased.”

Throughout the region, some local communities have already banded together to buy power on the open market, passing on the savings to residents, through what are called Community Choice Aggregation programs. Davis and Woodland are served by Valley Clean Energy, and Rocklin, Lincoln and Auburn are served by Pioneer Community Energy, for example.

But Jenine Windeshausen, the executive director of Pioneer Community Energy, a community choice aggregation that serves residents in Placer County, likened the power system to the railways: While local aggregators own the product — this case, electricity — PG&E owns the tracks and boxcars. That means the local agencies still must rely on PG&E infrastructure to keep the lights on.

“When Placer County got shut off, it was a hit to us as Pioneer power, because we’d already spent the money to buy power, but we couldn’t get it to customers,” said Placer County Supervisor Kirk Uhler.

‘There was disbelief’

Though the shutoffs earlier this month were unprecedented for many cities, it was old news for Placerville. Mayor Mark Acuna called a series of planned shutoffs in October 2018 a “massive disaster,” but said it did help the foothill city brace for future outages.

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Acuna recalls the city trying to warn colleagues in neighboring cities Auburn and Jackson.

“You could just see there was disbelief, ‘What do you mean PG&E shut the power off in your town?’” Acuna said. “Oh yeah, they did it, and you need to be prepared.”

For Acuna, the unfolding drama surrounding the state’s largest energy provider is personal — he spent 37 years with the company before retiring in 2014. In the 1990s, the company’s priorities changed, he said.

“PG&E would become the premier utility stock on Wall Street,” Acuna said of the company’s philosophy in the early 2000s. “They didn’t say it would be the premier electric safety company.”

Now, he said the electric system is “even more in decline than I realized.”

Given the recent blackouts and the local outage it’s caused, “at this point it would be very easy to go to SMUD” to consider annexation, but said realistically the small community would likely need to be part of a larger regional or state solution.

“We’d have to be part of a bigger effort,” Acuna said. “Going to SMUD, are they even going to be interested in taking over a foothill community?”

Still, Acuna considers the de-energizing of power lines, particularly when real-time weather data doesn’t indicate high winds in localized areas, “one of the final straws” for residents. “Everyone here is very disgusted” by PG&E management, he said.

“If they were to do another one of these, I can’t imagine — well, it would be very telling,” he said.

Sacramento Bee reporter Sophia Bollag contributed to this report.

This story was originally published October 26, 2019 5:20 AM.

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